I’ve been screening the London Stock Exchange for new investments. I think the company I’ve found is one of my best stocks to buy now. It has attractive income characteristics, but also potential for capital growth.
Let’s take a closer look.
The investment case
The company is Digital 9 Infrastructure (LSE: DGI9), an investment trust that listed on the London Stock Exchange in 2021. Its investment objective is to “generate a total return for investors comprising sustainable and growing income and capital growth through investing in a diversified portfolio of resilient Digital Infrastructure Investments”.
I view the digital infrastructure sector as benefitting from some strong structural growth trends going forward. Digital 9 Infrastructure is in a great position to capitalise on this, in my view.
It invests in three key areas: mobile phone towers, data centres, and fibre optic networks. Within these areas, expanding 5G networks, ultra-fast broadband, and cloud-computing should support growth over the long term.
According to Digital 9 Infrastructure, there will be 30bn of connected devices by next year, and 800m new internet users. And Amazon says that just 100ms of latency costs the company 1% of total sales. That’s a lot of lost revenue just because of slow internet speed!
In fact, some of Digital 9’s key customers are mega-cap technology companies such as Apple, Amazon, and Microsoft.
What’s in Digital 9’s portfolio?
As it stands, Digital 9 has made four investments: Aqua Comms, EMIC-1, Verne Global, and SeaEdgeUK1. This means the portfolio is 59% exposed to data centres, and the remaining 41% to subsea fibre cables. It does highlight some concentration risk, particularly towards data centres.
Its two data centre assets, Verne Global and SeaEdgeUK1, did perform well during 2021. Verne Global, in particular, outperformed, with revenue growing 80% on a profit margin of 60%.
There’s going to be a lot of investment to follow as Digital 9 looks to diversify its portfolio. Since listing, the company has already raised gross proceeds of £750m from investors. Therefore, the management team will have to keep finding high-quality assets at reasonable prices for shareholder returns to stay attractive.
Final thoughts
With the all growth in digital communication to come, there will have to be considerable investment in infrastructure. Digital 9 should be well placed to capitalise on this.
And because just about everything works digitally nowadays, I’d also consider it a defensive sector to invest in. Indeed, the global pandemic highlighted just how important digital infrastructure is to our economies.
Digital 9 is a new listing, so there isn’t a great track record to consider. However, the four investments it has made have been performing well so far, and the net asset value has risen 6.8% since the initial public offering, on 31 March 2021, to 31 December. I also consider the 5.4% dividend yield last year as attractive for my portfolio.
There’s still execution risk to consider as Digital 9 expands its portfolio. But for me, I think it’s one of my best stocks to buy now to gain exposure to this expanding sector.